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Economic and Trade Information on Hong Kong

1. Latest Development

  • Hong Kong’s economy expanded by 3.5% year-on-year in real terms in the second quarter of 2018, after the growth of 4.6% in the preceding quarter, marking the seventh consecutive quarter of growth above the trend growth rate of 2.7% per annum in the past decade.
  • With the continued momentum in global economic expansion and strength in domestic demand, as well as the increased external headwinds, the Government maintained its forecast for Hong Kong’s real GDP growth at 3-4% in 2018.
  • Overall consumer prices rose by 2.4% in June 2018 over the same month a year earlier, slightly quickened from 2.1% in May. Looking ahead, consumer price pressures are expected to increase somewhat. The Government forecasts Hong Kong’s consumer price to increase by 2.2% in 2018.
  • The value of retail sales, in nominal terms, increased by 12% year-on-year in June 2018, slightly slowed down from 12.9% in May 2018.
  • The labour market conditions remain tight, with the seasonally adjusted unemployment rate stood at 2.8% for the three months ending June 2018, the lowest level in more than 20 years.
  • Merchandise exports increased by 3.3% in June 2018 over the same month a year earlier, compared to 15.9% in May.
Table: Major Economic Indicators (Hong Kong)
Table: Major Economic Indicators (Hong Kong)

 

2. Strategic Position

  • Hong Kong is the world’s freest economy. It is the world's most services-oriented economy, with services sectors accounting for more than 90% of GDP.
  • According to World Trade Organization (WTO), Hong Kong is the world's 7th largest exporter of merchandise trade and the world's 15th largest exporter of commercial services in 2017.
  • According to the UNCTAD World Investment Report 2018, global FDI inflows to Hong Kong amounted to US$104 billion in 2017, ranked 3rd globally, behind only the Chinese mainland (US$136 billion) in Asia. In terms of outflows, Hong Kong ranked 3rd in Asia with US$83 billion, after Japan (US$160 billion) and the Chinese mainland (US$125 billion).
  • In terms of FDI stock, Hong Kong was the world’s 2nd largest investor and host, after the United States, in 2017.
  • According to the Bank for International Settlements, Hong Kong is the 2nd largest foreign exchange market in Asia and the 4th largest in the world in 2016, with the net daily average turnover of forex transactions reaching US$437 billion.
  • Hong Kong is a global offshore RMB business hub. According to SWIFT, Hong Kong is the largest RMB clearing centre in 2017, sharing about 76% of the world’s RMB clearing activities.
  • As at the end of December 2017, Hong Kong's stock market ranked the 3rd largest in Asia and the 6th largest in the world in terms of market capitalisation. There were 2,118 companies listed on HKEx and the total market capitalisation of Hong Kong's stock market reached US$4.35 trillion.
  • Hong Kong is an important banking and financial centre in the Asia Pacific. Hong Kong is the 3rd leading global financial centre, only after London and New York, according to the Global Financial Centre Index.
  • The Hong Kong International Airport is the world's busiest airport for international cargoes since 2011. Hong Kong is also one of the world's busiest container ports. In 2017, Hong Kong ranked 5th in the world in terms of container throughput.

 

3. Recent Government Initiatives

2017 Policy Address

The Chief Executive, Mrs Carrie Lam, unveiled her 2017 Policy Address on 11 October 2017. Below are some highlights:

  • Provide tax relief to small and medium-sized enterprises: profits tax rate for the first HK$2 million of profits proposed to be lowered to 8.25%, and standard tax rate at 16.5% for profits exceeding that amount.
  • Jointly develop with Shenzhen the “Hong Kong-Shenzhen Innovation and Technology Park” at the Lok Ma Chau Loop, and through the Guangdong-Hong Kong-Macau Bay Area development and collaboration between Hong Kong and Shenzhen, develop an international IT hub in the Bay Area.
  • Increase the Gross Domestic Expenditure on research and development as a percentage of the Gross Domestic Product from 0.73% to 1.5% in five years.
  • Redevelop the three government buildings in Wan Chai North into a new wing linking and integrating with the existing Hong Kong Convention and Exhibition Centre to provide an additional 23,000 sq m of convention and exhibition facilities.
  • Issue green bonds in 2018-19 to encourage investors to finance their green projects through Hong Kong capital markets.

The full text of the 2017 Policy Address can be found here.

2018-19 Budget

The Financial Secretary, Mr Paul Chan, unveiled his 2018-19 Budget on 28 February 2018. Below are some highlights:

  • Set aside HK$20 billion for the first phase of the Hong Kong-Shenzhen Innovation and Technology Park in the Lok Ma Chau Loop.
  • Set aside a dedicated provision of HK$500 million to develop financial services industry.
  • Launch a green bond issuance programme for Government’s green public works projects to promote green finance.
  • Cap trade declaration charge at HK$200 to enhance competitiveness and develop high-value added logistics services.
  • Provide a total of HK$250 million to Hong Kong Trade Development Council to assist local enterprises in seizing opportunities arising from the Belt and Road Initiative and Bay Area, and to promote development of e-commerce.

The full text of the 2018-19 Budget can be found here.

 

4. Major Economic Indicators

Chart: Real GDP Growth (Hong Kong)
Chart: Real GDP Growth (Hong Kong)
Chart: Unemployment Rate (Hong Kong)
Chart: Unemployment Rate (Hong Kong)

 

Chart: GDP Composition (Hong Kong)
Chart: GDP Composition (Hong Kong)
Chart: The Four Key Industries (Hong Kong)
Chart: The Four Key Industries (Hong Kong)

 

Chart: Real GDP Growth by Selected Components (Hong Kong)
Chart: Real GDP Growth by Selected Components (Hong Kong)

 

Chart: Retail Sales (Hong Kong)
Chart: Retail Sales (Hong Kong)
Chart: Visitors Arrivals (Hong Kong)
Chart: Visitors Arrivals (Hong Kong)

Source: Census and Statistics Department, HKSAR

 

External Trade

Merchandise Trade

Table: Merchandise Trade (Hong Kong)
Table: Merchandise Trade (Hong Kong)

 

Chart: Merchandise Trade Growth (Hong Kong)
Chart: Merchandise Trade Growth (Hong Kong)
Chart: Merchandise Trade Value (Hong Kong)
Chart: Merchandise Trade Value (Hong Kong)

 

Chart: Major Export Commodities (Hong Kong)
Chart: Major Export Commodities (Hong Kong)
Chart: Major Export Markets for Goods (Hong Kong)
Chart: Major Export Markets for Goods (Hong Kong)

Source: Census and Statistics Department, HKSAR

 

Trade in Services

Chart: Services Trade Growth (Hong Kong)
Chart: Services Trade Growth (Hong Kong)
Chart: Services Trade Value (Hong Kong)
Chart: Services Trade Value (Hong Kong)

 

Chart: Major Export Services (Hong Kong)
Chart: Major Export Services (Hong Kong)
Chart: Major Export Markets for Services (Hong Kong)
Chart: Major Export Markets for Services (Hong Kong)

Source: Census and Statistics Department, HKSAR

 

5. Investment Flows

  • According to a HKSAR Government survey, Hong Kong's total stock of inward direct investment was estimated at US$1,626 billion at the end of 2016.
  • One distinct feature of such direct investment was the indirect channelling of capitals from non-operating companies in tax haven economies.

 

Chart: FDI Stock (Hong Kong)
Chart: FDI Stock (Hong Kong)
Chart: FDI Inflow (Hong Kong)
Chart: FDI Inflow (Hong Kong)

 

Chart: Major Investors (Hong Kong)
Chart: Major Investors (Hong Kong)
Chart: Regional Headquarters and Offices (Hong Kong)
Chart: Regional Headquarters and Offices (Hong Kong)

 

Chart: Location of Parent Companies (Hong Kong)
Chart: Location of Parent Companies (Hong Kong)
Chart: Major Line of Business (Hong Kong)
Chart: Major Line of Business (Hong Kong)

Source: Census and Statistics Department, HKSAR

 

6. Trade Policies, Trade Relations and Tax Treaties

Trade Relations

  • Founding member of the World Trade Organization (WTO)
  • Member of the Asia-Pacific Economic Cooperation (APEC)
  • Member of the Pacific Economic Cooperation Council (PECC)
  • Member of the Asian Development Bank (ADB)
  • Member of the Asian Infrastructure Investment Bank (AIIB)
  • Associate member of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)
  • Observer of the Trade Committee of the Organization for Economic Cooperation and Development (OECD)

Trade Policies

  • Hong Kong is a free port and does not levy any Customs tariff on imports or exports, except there are four types of dutiable commodities which are liquors, tobacco, hydrocarbon oil and methyl alcohol.
  • The certification system in Hong Kong is to facilitate local products to be exported outside Hong Kong by certifying their origins.  Imports do not require origin certification.
  • Any persons who import or export any goods (other than exempted articles) are required to lodge accurate and complete import/export declarations to Hong Kong Customs within 14 days after the import/export of goods.
  • Subject to certain conditions, shipping companies, airlines and freight companies which have registered with the Trade and Industry Department are exempted from the import/export licensing requirements for their Transhipment cargoes.

Details of Hong Kong’s policies on import and export of goods can be found here.

Free Trade Agreements (FTAs)

FTAs in Force:

  • Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA)
  • Hong Kong, China – New Zealand Closer Economic Partnership Agreement
  • FTA between Hong Kong, China and EFTA Member States
  • FTA between Hong Kong, China and Chile
  • Hong Kong and Macao Closer Economic Partnership Agreement (HK-Macao CEPA)

FTA Signed:

  • Hong Kong, China – ASEAN FTA
  • Hong Kong, China – Georgia FTA

FTAs under Negotiation:

  • Hong Kong, China – Maldives FTA
  • Hong Kong, China – Australia FTA

Details of the FTAs can be found here.

CEPA

  • CEPA is a free trade agreement concluded by the Mainland and Hong Kong. At present, all products of Hong Kong origin, except for a few prohibited articles, can be imported into the mainland tariff free under CEPA. Hong Kong service suppliers also enjoy preferential treatment in entering into the mainland market in various service areas.
  • In December 2014, the Agreement between the Mainland and Hong Kong on Achieving Basic Liberalisation of Trade in Services in Guangdong (Guangdong Agreement) was signed, enabling early realisation of basic liberalisation of trade in services with Hong Kong in Guangdong. The Agreement on Trade in Services signed in November 2015 further enhances the liberalisation in both breadth and depth, including extending the implementation of the majority of Guangdong pilot liberalisation measures to the whole Mainland.
  • In June 2017, the Investment Agreement and the Agreement on Economic and Technical Cooperation (Ecotech Agreement) were signed under the framework of CEPA. The Investment Agreement expands the market access commitments to non-services sectors outside the scope of the Agreement on Trade in Services and introduces obligations on investment protection to both services and non-services sectors. The Ecotech Agreement consolidates and updates the economic and technical co-operation activities between Hong Kong and the Chinese mainland.

Details of CEPA can be found here.

Apart from FTAs, Hong Kong has signed Investment Promotion and Protection Agreements (IPPAs) with 20 economies, and concluded the negotiations with Bahrain, Mexico, Myanmar and the UAE, respectively; the IPPAs with Iran and Russia, respectively, are under negotiation. On the other hand, Hong Kong has concluded comprehensive double taxation agreements (CDTAs) with some 40 jurisdictions while those with another 11 countries/territories are still under negotiation.

For more information and assistance in establishing an operation in Hong Kong, please read the Guide to Doing Business in Hong Kong, or contact InvestHK.

 

7. Economic Relations with the Chinese Mainland

  • Hong Kong is an important entrepôt for the Chinese mainland. According to the HKSAR Government statistics, in 2017, 58% of re-exports were of China origin and 54% were destined for the Chinese mainland.
  • According to China Customs statistics, Hong Kong is the third largest trading partner of the Chinese mainland after the US and Japan, accounting for 7% of its total trade in 2017.
  • Hong Kong is the largest source of overseas direct investment in the Chinese mainland. By the end of 2017, among all the overseas-funded projects approved in the Chinese Mainland, 44.9% were tied to Hong Kong interests. Cumulative utilised capital inflow from Hong Kong amounted to US$1,008.2 billion, accounting for 53.2% of the national total.
  • Hong Kong is also the leading destination for China’s FDI outflow. According to Chinese statistics, by 2016, the stock of FDI going to Hong Kong accumulated to US$780.7billion, or 57.5% of the total outflow of FDI.
  • The Chinese mainland, on the other hand, is a leading investor in Hong Kong. According to the HKSAR Government statistics, the stock of Hong Kong's inward investment from the Chinese mainland amounted to US$418 billion at market value or 25.7% of the total at the end of 2016.
  • Hong Kong is a technology marketplace for the mainland China. According to the Ministry of Science and Technology, in 2016, Hong Kong was the 7th largest source of technology imports for the Chinese mainland in terms of contract value (US$879 million), accounting for 2.9% of the total.
  • Hong Kong is a key offshore capital raising centre for Chinese enterprises. As of December 2017, 1,051 mainland companies were listed in Hong Kong, comprising H-share, red-chip and private companies, with total market capitalisation of around US$2.9 trillion, or 66% of the market total. Since 1993, mainland companies have raised more than US$700 billion via stock offerings in Hong Kong.
  • As of January 2018, there were 12 licensed banks and 7 representative offices, incorporated in the Chinese mainland, operating in Hong Kong.
  • In November 2014, Shanghai-Hong Kong Stock Connect was launched to establish mutual stock market access between Hong Kong and Chinese mainland, a significant breakthrough in the opening of China’s capital markets.
  • In December 2016, Shenzhen-Hong Kong Stock Connect, with similar programme principles and design, was launched to further facilitate two-way investment flows and consolidate Hong Kong’s development as the global offshore RMB business hub.
  • In July 2017, the mutual bond market access between Hong Kong and the Chinese mainland (Bond Connect) was launched to promote the development of the bond markets in the two places.
  • In December 2017, the Arrangement between the National Development and Reform Commission (NDRC) and the Government of the Hong Kong Special Administrative Region for Advancing Hong Kong’s Full Participation in and Contribution to the Belt and Road Initiative (the Arrangement) was signed. The Arrangement serves as a blueprint for Hong Kong's further participation in the Belt and Road Initiative.
Content provided by Picture: Doris Fung
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